A DAppTotal Report On DeFi Industry In 2019

Contents

Executive Summary

1. Introduction

2. Status Quo And Major Trends In DeFi Industry

3. DeFi — Stablecoin

4. DeFi — Lending

5. DeFi — DEX

6. Overview of Leading DeFi Applications

7. Conclusion

References

About Us

Executive Summary

In this report we analyze the DeFi landscape in the year of 2019, and provide in-detail data and analysis of DeFi applications such as Stablecoins, Lending, and DEXs. DeFi industry started to attract major attention in 2018, and becomes a much larger force in 2019, with a total locked asset value of $931M USD as of 12/31/2019, a three-fold increase from $302M on 01/01/2019, although dropped from $1.49B in middle of the year.

• Currently most stablecoins are pegged to US dollar and issued on the Ethereum blockchain. The usage of stablecoins has been growing fast in the first half of 2019, and accelerated in April as crypto prices rebounded, and slowed down a bit in the second half of the year. The daily on-chain transaction volume reached $798M on 12/31, meaning the entire circulation of stablecoins, about $5.8B, may all change hands once in every seven, eight days.
• DeFi lending is still a very young sector with only two years history, but has been growing rapidly. The most borrowed assets are DAI and WETH, and the total origination (Borrows + Loans) increased from $82M in January to $685M in December, a growing of 8 times. At the same time, the total user base is still small, monthly active user is only a few thousands, and the lending feature set is quite limited.
• DEXs are still much smaller in scale comparing with centralized exchanges. Their main value proposition is transparency and security, while speed and liquidity are their major shortcomings. For the time being they are mainly used to trade tokens not listed on centralized exchanges. The total trading volume of DEXs increased from $77M in January to $299M in June, then dropped to $119M in December, and the two of the fastest growing DEXs are Eth2dai and Uniswap.

1. Introduction

Decentralized Finance, DeFi for short, also known as Open Finance, is one of the most exciting developments in the blockchain ecosystem in the recent two years. Essentially, DeFi can be regarded as conventional finance on blockchain, especially Ethereum blockchain for the time being.

By leveraging blockchain technologies, DeFi attempts to address the primary shortcomings of the conventional/centralized finance, namely Unequal Access, Censorship, Lack of Transparency, and Counter-party Risk (the risk of a financial institution does not fulfill its contractual obligations).

In DeFi system, users can retain the full control of their fund and personal data while accessing censorship resistant financial services, and the DeFi financial tools are open and permissionless, users can access them anywhere in the world, an internet connection is the only prerequisite. DeFi also provides vastly improved transparency comparing to conventional finance, and the financial agreements are arbitrated by smart contracts which are executed automatically, eliminating much of the counter-party risks by reducing the financial institutions’ involvement in many transactions.

1.1 Total Locked Value of Leading DeFi Applications

DeFi industry can be further divided into categories such as Stablecoin, Lending, Payment, Derivative, DEX (Decentralized Exchange), and Asset, etc. In this report, we will give a overview of the entire industry, then provide in-detail data and analysis of three of the categories, Stablecoin, Lending, and DEX.

In 2018, DeFi started to gather attention from the media, blockchain community, and the financial industry. Now in 2019, it has become a much large force. As shown in Figure 1, the total locked asset value of the DeFi industry kept getting bigger in the first half of 2019. On 01/01/2019, the total locked value was $302M USD, then on 06/30/2019, it has grown to $1.49B, with the bulk of them locked in EOS REX [1] and Maker [2]. However, the total locked value decreased in the second half of the year, to $931M as of 12/31/2019, possibly caused by the price drop among major crypto currencies.

Figure 1. Total Locked Value of DeFi Applications in 2019

According to our data from DAppTotal.com [3], as of 12/31, the top 5 DeFi applications are Maker, EOS Rex, Edgeware [4], Compound [5], and Synthetix [6], as shown in Figure 2. If we look at Lending only, the top tier applications (or Tier 1) are Maker, Compound, Dharma, and dYdX [7], with a total locked asset value of $278M on 01/01/2019, and $405M on 12/31/2019, as shown in Figure 3.

Figure 2. Ranking of Top DeFi Applications From DAppTotal.com

The most prominent DeFi applications are stablecoins, lending, and DEXs. Stablecoins and DEXs appeared a few years ago and are playing increasing larger role in the blockchain universe, while lending showed up more recently but is growing in a staggering speed. In following sections, we will look into these three types of DeFi applications and provide in-detail analysis of each of them.

Figure 3. Total Locked Value of Tier 1 DeFi Lending Applications

1.2 Methodology And Disclaimer

All data in this report is ultimately derived from public data on blockchain, including Ethereum, and the data analysis part has leveraged previous work done by DAppTotal team. In over a year’s time, DAppTotal team have accumulated vast amount of transaction and log data of leading public blockchains, generated our own database, and built various tools for data analysis. This report is one of the results based on DAppTotal blockchain database and analysis software. The industry trend and prospect discussion in the report are based on our data, understanding, and opinion of the blockchain ecosystem and DeFi industry.

Disclaimer: The content provided in this report are based on our best understanding and research, but due to the pseudo anonymous nature of blockchains, the findings we present here can not be guaranteed and assured to be accurate, and DAppTotal can not be held responsible for any error, negligence, or damages arising therefrom.

Furthermore, DAppTotal is not an investment advisor, broker, or dealer, and we have no access to non-public information about this research area. This report and the information contained herein is therefore not intended to be a source of investment advice or credit analysis.

2. Status Quo And Major Trends In DeFi industry

To implement the blockchain’s main value proposition, one of the most promising areas is the financial industry, as Bitcoin and other crypto currencies are natural candidates for store of value and tool of payments. The emergence of DeFi is showing early proofs of crypto currencies’ real utility and applicability.

DeFi industry can cover a wide range of areas, such as payment, stablecoin, lending, DEX, and Derivative, but the core of the industry is related to asset movement (e.g., in lending). While DEX and stablecoin were started a few years back, DeFi lending only emerged in the recent two years. The first well known lending platform is Maker, which was started in December 2017, still being the largest DeFi application currently.

Figure 4. DeFi Total Holding Value and Market Share Graph
(as of 12/31/2019)

The second largest DeFi application for now, EOS REX, which is less than a year old, is a deposit platform on the EOS blockchain. Both Maker and EOS REX are infrastructural-level platforms to support the larger crypto economy, and together they account for about 58% of the total assets locked by DeFi applications, according to data from DAppTotal.com on 12/31 as shown in Figure 4. This is a sign of currently limited scope and how young the DeFi sector still is.

As in their early stage, current DeFi applications only offer limited features. Maker platform only supports a few assets as collateral and DAI stablecoin as loan. EOS REX users can only deposit EOS or pay EOS for renting resources on EOS blockchain.

Besides Maker and EOS REX, many DeFi applications were launched since 2018 to offer other types of financial services, such as Compound, a decentralized money market which started in September 2018, where users can lend their crypto assets to earn interest or borrow from the platform; Dharma, a peer-to-peer lending platform, launched in April 2019, supports borrowing and lending in multiple assets such as ETH, DAI, and USDC stablecoin; And dYdX, a lending, margin trading, and derivatives platform launched in September 2018, supports up to 4x leverage trade of ETH, DAI, and USDC tokens.

The decentralized and geographically nonspecific nature of the blockchain means that DeFi is open to a wider market of customers than the traditional centralized finance, and offers greater accountability and transparency. Although still in early phase, as more DeFi applications coming online, we are seeing tremendous growth of the DeFi industry in 2019, and a recent trend of multiple applications working as a suite, e.g., DAI borrowed in Maker can be lent out in Compound, or traded in dYdX.

Currently DeFi is a very young industry, also only a small percentage of people own crypto assets and DeFi applications need crypto assets as collateral, so the user base of DeFi applications is still relatively small. Therefore, the future challenge of the DeFi industry still lies in the area of user education and the continued mainstream adaptation of crypto currencies.

3. DeFi — Stablecoin

Stablecoin is a type of crypto currencies meant to hold stable value, designed to minimize price volatility relative to some asset or basket of assets. Most stablecoins in the market are backed, and pegged to one or more crypto currencies, fiat money, or commodities such as gold, although some stablecoins are tied to an algorithm and not backed by other assets.

The first well known stablecoin is Tether (USDT) [8], which was issued on the Bitcoin network on 10/06/2014, and it is still the largest stablecoin today. Starting from late 2017 and early 2018, many stablecoins were started to emerge and compete in this space, such as TUSD, USDC, and DAI, etc, and here we call them emerging stablecoins.

Figure 5. Stablecoins Market Share Graph (As of 12/31/2019)

3.1 Stablecoin Market Data

Shown in Figure 5, as of 12/31/2019, the total circulation supply of stablecoins is $5.82B USD, among them the circulation of USDT is $4.76B, occupying a commanding market share of 81.7%. Among the emerging stablecoins, USDC’s total circulation is $522M, which is ranked number one with a 48.8% market share among emerging stablecoins; PAX is ranked number two with a circulation of $223M and 21% market share; TUSD is ranked number three, with a circulation of $154M and 14.4% market share. Other emerging stablecoins, including DAI, GUSD, EURS, nUSD, etc, occupy a market share of 15.8%.

Figure 6. The Total Circulation History Of Major Stablecoins

The total circulation supply of stablecoins was $2.76B on 01/01/2019, and as crypto prices recovered around 04/01, the issuance of various stablecoins were also accelerated. The market share among major stablecoins have been relatively stable in recent six months, as most of them have been issuing significant amount of new coins.

Overall in 2019, USDT total circulation increased by $2.85B, comparing with the total circulation of $1.9B as of 12/31/2018, an increase of 150%; USDC circulation increased by $257M, comparing with $262M of 12/31/2018, an increase of 98%; DAI circulation increased $19M, an increase of 29% comparing with $63M as of 12/31/2108.

Figure 6 shows the total circulation numbers of major stablecoins starting from 01/01/2018. The USDT circulation number is split into OMNI-USDT (issued on Bitcoin network), ERC20-USDT (issued on Ethereum network), and TRC20-USDT (issued on TRON network).

Figure 7 and Figure 8 show the stablecoins daily on-chain transaction numbers and total transaction volume in 2019. Both indicate significantly increased activities or velocities over the last several months.

3.2 The State of Stablecoins

Currently, most stablecoins are issued on top of the Ethereum blockchain, majority of them are pegged to, and one to one backed by US dollars. The issuance of various stablecoins have been accelerated in the recent months as crypto prices recover, since the main usage of stablecoins is still for price hedging and trading of other crypto currencies, and using them as a tool of payments is still not developed yet.

Figure 7. Stablecoins Daily Tx Count In 2019

Overall, the usage of stablecoins has been growing fast during 2019, the daily on-chain transaction volume has increased from $143M on 01/01 to $798M on 12/31, meaning the entire stablecoin circulation may change hands once in around 7 days. The daily on-chain transaction count increased from 13K on 01/01 to 94K on 12/31.

Figure 8. Stablecoins Daily Volume In 2019

4. DeFi — Lending

The largest sector in the DeFi industry is lending, also called secured lending, because the borrowers’ ability to borrow is based on the value of collaterals, not their credit history. The lender or the lending platform may liquidate the collaterals to repay the loan in case of default.

DeFi lending protocols are designed to facilitate lending and borrowing of digital assets, and enable instantaneous transaction settlement of loans on public blockchains through smart contracts. They also allow interoperation among different DeFi applications and participants.

Figure 9. Total Originations Market Share In 2019

The four major lending protocols currently in the market are Maker, Compound, Dharma (Since Dharma smart contract is not open source and there is no public data available, Dharma data is not included in this report), and dYdX. All of them operate on top of the Ethereum network, Maker started the earliest, in December 2017, while the other three all started in 2018. Maker issues its own stablecoin, i.e., DAI, which is pegged to US dollar, and the others only enable the lending, borrowing, and trading of ETH and existing ERC20 tokens.

Maker allows user to put up ETH as collateral and take out DAI as loan; Compound allows user to put multiple assets as collateral into a pool, and borrow from the pool also; Dharma facilitates peer-to-peer lending and borrowing; And dYdX is a lending and margin trading platform of digital assets.

4.1 Data Analysis Of DeFi Lending Applications

In 2019, the total originations (the sum of borrows and loans) are $3.3B. Figure 9 and 10 show the total market share and monthly originations in 2019.

Figure 10. Monthly Originations In 2019

Figure 11. The collateral ratio graph in 2019

The collateral ratio has been continuously healthy during the first half of this year. As shown in Figure 11, most of the time the ratio is well above 200%. As of 12/31/2019, these lending applications stay well-backed at around 250%.

The total borrowed amount in 2019 are $931M, and Figure 12 and 13 show the market share and monthly borrows amounts.

Figure 12. Market Share of Total Borrows In 2019

Figure 13. Monthly Borrows In 2019

The total volume of loans in 2019 are $2.4B. Figure 14 and 15 show the market share and monthly loans, Figure 16 is the active loan outstanding graph, and Figure 17 shows the (accumulated) active users of the lending applications in 2019.

Figure 14. Market Share of DeFi Loans In 2019

Figure 15. Monthly Volume of Loans In 2019

Figure 16. Active Loan Outstanding in 2019

Figure 17. (Accumulated) Active Users Of Lending Applications

4.2 The State of DeFi Lending

With only two years history, DeFi lending is very young sector, but has been growing rapidly. The total borrows increased from $24M from January to $223M in December, and total loans increased from $59M in January to $463M in December. The most borrowed assets are DAI and WETH, and the collateral ratio is around 400% at most times, which is a quite conservative and safe for the system. On the other hand, the total number of users is still small, and the lending feature set is quite limited.

Another trend we can see is that some users have started to use multiple DeFi applications at the same time, and there are overlaps among users of Maker, Compound, dYdX, etc., as we can see from Figure 18, which shows the user overlaps among leading DeFi applications as of December of 2019.

Figure 18. User Overlaps Among Leading DeFi Applications

5. DeFi — DEX

A DEX is a crypto currency exchange that operates on blockchain, without a central authority, and it allows peer-to-peer trading of crypto tokens without much of the KYC (Know-Your-Customer) requirements. Since users may not need to transfer their assets into exchanges, DEX can minimize the risk of asset loss from exchange hackings. DEX can also prevent price manipulation or fake trading volume because all the trading transactions are recorded on blockchain.

In this section, we present our data and analysis of 17 major DEXs, namely Eth2dai, IDEX, Kyber, Uniswap, ForkDelta, DDEX, The Token Store, AirSwap, Radar Relay, Paradex, Bancor, Tokenlon, Star Bit, LedgerDex, Bamboo Relay, The Ocean, and TokenJar.

Figure 19. DEX Market Share Graph In 2019

5.1 DEX Market Share And Trading Data

Comparing with centralized exchanges, the trading volume and active users of DEXs are still relatively small. In 2019, the top DEX in trading volume is Eth2dai, with a market share of 25%. Its total volume of 2019 is $522M USD, a volume can be achieved by top centralized exchanges in a few days; IDEX is the second largest, with a trading volume of $401M and market share of 20%; Uniswap ranked number three with a volume of $382M, and Kyber is number four with a volume of $253M. Figure 19 shows the DEX market share and ranking data in 2019.

Figure 20 shows the DEX monthly trading volume, Figure 21 is the DEX monthly number of trades, and Figure 22 is the monthly active users among DEXs in 2019.

Figure 20. DEX Monthly Trading Volume In 2019

5.2 The State of DEXs

The total trading volume of DEXs is still small but growing quickly, from $77M in January to to the highest point of the year, $299M in June, then dropped to 119M in December. The two of the fastest growing DEXs are Eth2dai and Uniswap. The total transaction counts increased from 237K in January to 434K in June, then dropped to 234K in December. The total monthly active users increased from 31K in January to 59K in August, then dropped to 25K in December.

The main value proposition of DEXs are transparency and security, while speed and liquidity are the major shortcomings of DEXs for now. Currently, DEXs are still much smaller in scale comparing to centralized exchanges, and they are mainly used to trade tokens not listed on centralized exchanges.

Figure 21. DEX Monthly Transaction Numbers In 2019

Figure 22. DEX Monthly Active Users (MAUs) In 20196. Overview Of Leading DeFi Apps

6. Overview Of Leading DeFi Apps

In this Section, we will give an overview and data snapshot of four major DeFi applications, Maker, Compound, dYdX, and Edgeware. Dharma is not included since it is not yet open-source and there is no public data available.

6.1 Maker

The Maker platform was started in 12/18/2017, and they are also the creator of DAI, a decentralized stablecoin based on Ethereum and pegged to US Dollar. For the time being, the Maker platform and DAI stablecoin have very limited real world usage beyond margin lending for crypto trading.

The V1 of Maker smart contract supports only ETH as collateral, but its V2 MCD version supports multiple assets as collateral..

Here are a data snapshot of Maker V1 and V2 Versions, and its borrows APR graph of 2019.

6.2 Compound V1 & V2

Launched in September 2018, Compound is a money market platform, where users can lend their crypto assets to earn interest, or borrow assets from the platform. Interest rates are adjusted algorithmically based on the supply and demand for borrows and loans.

Compound protocol Version 2 was released in May of 2019. Here we provide snapshots for both the V1 and V2 protocols.

6.3 dYdX V1 and V2

dYdX is a lending, margin trading, and derivative platform, started in September 2018, supports up to 4x leverage trade of ETH, DAI, and USDC tokens.

dYdX protocol Version 2 was released in June of 2019. Here we provide snapshots for both V1 and V2 protocols. 6.4 A List of DeFi Applications From DAppTotal.com

Here is a comprehensive list of DeFi applications tracked by DAppTotal.com, as of 12/31/2019. 7. Conclusion

We are seeing amazing progress in the DeFi space recently, and in this report we analyzed the status of DeFi industry in the year of 2019, and provided in-detail data and analysis of DeFi applications such as Stablecoins, Lending, and DEXs. DeFi industry started to attract major attention in 2018, and becomes a much larger force in 2019, with a total locked value of $931M USD as of 12/31/2019, an three-fold increase from $302M USD on 01/01/2019. As of 12/31, the top 5 DeFi applications ranked by total locked value are Maker, EOS REX, Edgeware, Compound, and Synthetix.

References

[1] EOS REX official site, https://eosauthority.com/rex

[2] MakerDAO website, https://makerdao.com/en/

[3] DAppTotal website, a platform of DApp data collection and analysis, https://dapptotal.com/

[4] Edgeware website, https://edgewa.re/

[5] Compound website, https://compound.finance/

[6] Dharma website, https://www.dharma.io/

[7] dYdX website, https://dydx.exchange/

[8] Tether website, https://tether.to/

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